RELATED VIDEO

RELATED COMPANIES

x

Loading data...

In an interview with ET Now, Jim Walker, MD & Founder, Asianomics, gives his views on the global economy and markets, and talks about the rate cut and expectations from the Indian Budget. Excerpts:

ET Now: Characterise the global picture for us. It appears to me that last year was about dividend, diversification and hiding in bonds. This week money managers are clearly chasing growth.

Jim Walker: Yes, I suppose that is a truth to a certain extent, but if you wanted me to characterise the global economy in one word at the moment, then as far as the markets are concerned, that would be complacency. For some reasons people seem to believe that Europe has been repaired just because the central bank and governments have managed to get sovereign bond yields down, but if you actually look at the real numbers, you will find that Europe is deteriorating and contracting even faster now than it was during the whole of 2012.

The US is moving forward, but we do not know how much of that move forward it's going to be. On Asia, yes China is accelerating because it is doing all the wrong things yet again, but at a certain point, 9% growth generated by local government spending is going in a wrong direction, and the markets are just far too complacent about 2013.

ET Now: What is the expectation from the budget at this point in time and how do you think that will really set tone or perhaps not for the rest of the year?

Jim Walker: This budget is going to be an interesting one because it's the budget before an election. The election obviously will not come till June 2014. In other words, this is the only budget that the markets are running up to. Budget is usually characterised in India by a whole host of populist measures to try and generate support and keep the government in power, but if it is populist measures this year, then I am afraid the Reserve Bank of India would not be playing along.

It would be saying, well, if we do not have a consolidation on the fiscal front and we do not see some real action to try and control the fiscal deficit, then we would not be cutting interest rates, which is just about the last thing that the Indian government can afford this year. So they have actually got to do something sensible. In the 2013 budget, we have really got to see the government making strides towards fiscal consolidation and in that way, they might encourage the RBI to cut interest rates. So this is going to be a very interesting budget in India. Hopefully FM is going to deliver a lot more than just promises.

ET Now: And before the budget, all eyes will be on what the RBI does at the credit policy. What do you expect?

Jim Walker: We do not expect any change in this particular round. The government obviously made announcements last week on fuel subsidies and the number of canisters of gas that people can get at subsidies levels. Effectively we think that the central bank actually signalled after those announcements that it is not enough to take one step forward on subsidies by saying that you might alone place adjustments and then take half a step back by saying that it will increase the number of subsidised gas canisters that people can get hold of.

The government wants its cake and wants to eat it as well. It is not willing to go forward with new fiscal consolidation and real measures that would encourage the RBI to start cutting interest rates. So we don't expect any change in monetary policy at the end of this month.

ET Now: That is a brave call because the consensus call is that the Reserve Bank of India will cut rates by at least 25 bps. You are sticking your neck out and making a case that we will not get a rate cut?

Jim Walker: Yes, that is right. I realise that is the consensus call and there is certainly some pressure on the Reserve Bank by the government. But I hope the Reserve Bank has made a sterner stuff and really just to be cajoled into cutting interest rates because the government keeps promising to do something gradually does not deliver.

ET Now: Is not something better than nothing? A year ago nothing was coming, but at least there is some improvement. So look at the bright side rather than looking at the glass half empty. The glass could be half full also?

Jim Walker: Yes, but what we have found so far and in last year also is that the economy has slowed down. Capital goods expenditure and capital goods intentions, which are really the heart of economic growth, have not improved over the course of the last year. The markets have gone a way up. But that is because almost $24 billion of foreign money kept coming into the Indian economy.

Well, the truth is that the Reserve Bank of India surely should not be expected to cut interest rates on the back of a flood of money from outside. Given all we have had so far from the government, it is really only talk about what it is going to do regarding the fiscal deficit and not any action. Again that is a reason for the Reserve Bank to be on hold rather than start cutting interest rates.

ET Now: So are you are making a case that for Indian markets 2013 could be a year of inverted V, which is a good start, and then things could pretty much crash land in the second half of this calendar year?

Jim Walker: I am not sure about crash landing, but I certainly think that the markets globally have got ahead of themselves on the back of actions from the central banks. In fact, everybody has solved all of the problems except for a few economies, but they cannot do the same again this year. So money flows are going to be much weaker in 2013 than they were in 2012 and that is going to give equity markets a really tough ride through the course of the year, and not many companies would be able to deliver on corporate earnings.